Annual Report and Audited Financial Statements

Transcription

1 (formerly Pareto Total plc) (an investment company with variable capital incorporated with limited liability in Ireland with registered number operating as an umbrella fund with segregated liability between sub-funds). Annual Report and Audited Financial Statements Pareto Total A Sub-Fund of Pareto plc For the financial year ended

2 Annual Report and Audited Financial Statements For the financial year ended Directors of the Company 3 Management and Administration 3 Report of the Directors 5 Statement of Depositary s Responsibilities 8 Depositary s Report 8 Alternative Investment Fund Manager s Report 9 Pages Independent Auditors Report 11 Statement of Financial Position 14 Statement of Comprehensive Income 15 Statement of Changes in Net Assets attributable to Holders of Redeemable Participating Shares 16 Statement of Cash Flows Schedule of Investments 47 Appendix 1 (Unaudited) 50 2

3 Directors of the Company Mr. Jim Cleary * Mr. Mike Kirby ** Ms. Anna Måbäck ** (Appointed 15 th February 2017) Mr. Yngve Torvanger Jordal ** (Resigned 15 th February 2017) *(independent non-executive Director) **(non-executive Director) REGISTERED OFFICE 25/28 North Wall Quay Dublin 1 Ireland SECRETARY Goodbody Secretarial Limited International Financial Services Centre North Wall Quay Dublin 1 Ireland Management and Administration ALTERNATIVE INVESTMENT FUND MANAGER Pareto Asset Management AS Dronning Mauds gate 3 P.O. Box 1810 Vika 0123 Oslo Norway DEPOSITARY SMT Trustees (Ireland) Limited Block 5 Harcourt Centre Harcourt Road Dublin 2 Ireland ADMINISTRATOR SMT Fund Services (Ireland) Limited Block 5 Harcourt Centre Harcourt Road Dublin 2 Ireland 3

4 Management and Administration PRIME BROKER AND SUB-CUSTODIAN Skandinaviska Enskilda Banken S Stockholm Sweden Acting through its London branch 2-6 Cannon Street London EC4M 6XX AUDITORS Grant Thornton City Quay Dublin 2 Ireland LEGAL ADVISORS TO THE COMPANY In Ireland A & L Goodbody International Financial Services Centre North Wall Quay Dublin 1 Ireland 4

5 Report of the Directors For the financial year ended The Directors present their annual report and financial statements for the financial year ended. Significant Events during the Financial Year On 21 st December 2017, the Central Bank of Ireland (the Central Bank ) approved the change of name of Pareto Total plc to Pareto plc (the Company ), along with the reconstitution of the Company from a standalone to an umbrella company. The Company is an open-ended investment company with variable capital and segregated liability between its sub-funds, incorporated with limited liability and registered in Ireland under Sections 1385 to 1415 of the Companies Act 2014, as amended Companies (Accounting) Act 2017 (the Act ), and the AIF Rulebook regulations with registered number As at, there is only one sub-fund in the Company namely, Pareto Total (the Sub- Fund ). The Sub-Fund was authorised by the Central Bank on 18 th July 2013 as an investment company under the Act, Part 24. Ms. Anna Måbäck replaced Mr. Yngve Torvanger Jordal as a Director of the Company on 15 th February Principal Activity The investment objective of the Sub-Fund is to achieve robust long-term returns through flexible and active investments, whilst curbing downside volatility. Audit Committees The Directors have decided not to form an Audit Committee, as per section 167 of the Act, as there are currently three non-executive Directors of which one is an independent Director of the Company. Results The financial position and results for the financial year are set out on pages 14 to 15. Review of the Development of the Business and Future Developments Please see the Alternative Investment Fund Manager s Report on page 9 for further details on the performance of the Sub-Fund. The Directors intend to continue to operate the Company in its current form. General information of the Company is disclosed in Note 1. Dividends and Retention No dividends were declared or paid during the financial year (2016: Nil). Events since the Statement of Financial Position Date A second sub-fund is scheduled to launch on 23 rd April There were no other events subsequent to the financial year end, which require disclosures in the financial statements. Directors The Directors of the Company who served during the financial year ended are listed on page 3. 5

6 Report of the Directors For the financial year ended Directors and Secretary s Interests Mr. Yngve T. Jordal, a former Director of the Company who is employed by Pareto Asset Management AS holds no Founder Class - EUR Shares (2016: 2,261.05). None of the other Directors or the Secretary (including family interests) had any interest in the Redeemable Participating Shares of the Company, as defined by the Act, at the beginning, during or end of the financial year. Transactions Involving Directors Directors interests in transactions with the Company during the financial year ended 31 st December 2017 are disclosed in Note 14. Risk Management Objectives and Policies The Sub-Fund seeks to provide investors with capital appreciation by investing in equities, debt securities and derivatives, primarily in the Nordic countries. Investment in the Sub-Fund carries with it a degree of risk including but not limited to the risks referred to in Note 5 of these financial statements. Information about the financial risk management objectives and policies of the Sub-Fund are also disclosed in Note 5. Directors Responsibilities Statement The Directors are responsible for preparing the Report of the Directors and the financial statements in accordance with company law and regulations. Company law requires the Directors to prepare financial statements giving a true and fair view of the state of affairs of the Company and the profit or loss of the Company for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards ( IFRS ) as adopted by the European Union. In preparing these financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgments and accounting estimates that are reasonable and prudent; state whether the financial statements have been prepared in accordance with the applicable accounting standards, identify those standards, and note the effect and the reasons for any material departure from those standards; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors confirm that they have complied with the above requirements in preparing the Financial Statements. The Directors are responsible for ensuring that the Company keeps or causes to be kept adequate accounting records which correctly explain and record the transactions of the Company, enable at any time the assets, liabilities, financial position and profit or loss of the Company to be determined with reasonable accuracy, enable to ensure that the financial statements and Report of the Directors comply with the Act and with the AIF Rulebook and enable the financial statements to be audited. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors have appointed the Depositary to hold the assets in safekeeping for the Shareholders. The Directors have appointed the Administrator in order to ensure that those requirements are complied with. The books and accounting records are maintained at the address of the Administrator at Block 5, Harcourt Centre, Harcourt Road, Dublin 2. 6

7 Report of the Directors For the financial year ended Connected Parties The Board of Directors is satisfied that all transactions with connected parties have been carried out at an arm s length basis and in the best interest of Shareholders during the financial year as required by Chapter 2, Part 1, Section viii of the AIF Rulebook as issued by the Central Bank. The Board of Directors is satisfied that there are arrangements in place, to ensure that the obligations as noted above are applied to all transactions with connected parties. Corporate Governance Code The Board of Directors voluntarily complies with the Corporate Governance Code (the Code ) for Irish Domiciled Collective Investment Schemes as published by Irish Funds ( IF ). In respect of the composition of the Board of Directors, the states the following: It is important that there is a good balance of skills and expertise on the Board, and it is strongly recommended that at least one Director be an employee, partner or director of the promoter or Investment Manager. Ms. Anna Måbäck is not an employee, partner or director of the promoter or Investment Manager. However, the Board believe that Ms. Måbäck possesses all the necessary skills and experience to make an effective Director in respect of the Company. In addition, the Board note that appointing someone who is not an employee, partner or director of the Investment Manager provides a level of independence that would not be present if an employee, partner or director of the Investment Manager was to assume the role. Otherwise, the Board of Directors has assessed the measures included in the IF Code as being consistent with it corporate governance practices and procedures for the financial year. Statement on Relevant Audit Information so far as the Directors are aware, there is no relevant audit information of which the statutory auditors are unaware: the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information. Auditors The auditors Grant Thornton will continue in office in accordance with Section 383 (2) of the Act. On behalf of the Board of Directors Mike Kirby Jim Cleary Date: 26 th April

8 Statement of Depositary s Responsibilities For the financial year ended Sections 1385 to 1415 of the Companies Act 2014, as amended Companies (Accounting) Act 2017 ( the Act ), requires the Depositary to take reasonable care so as to ensure that Pareto plc ( the Company ) is managed in accordance with the Act and the Memorandum and Articles of Association. In particular, the Depositary must: - satisfy itself on a continuing basis on reasonable grounds and report that the Company has been managed in all material respects in accordance with the limitations imposed on the investment and borrowing powers of the Company by the Memorandum and Articles of Association and the Act; take into its custody or under its control, all the assets of the Company and hold them in safekeeping for the Shareholders in accordance with the Act and the Memorandum and Articles of Association; satisfy itself that the valuation of the shares of the Company and that the sale, issue, repurchase, redemption and cancellation of shares of the Company are being carried out in accordance with the Act and the Memorandum and Articles of Association. To enable the Depositary to fulfill its responsibilities under the Act and the Memorandum and Articles of Association, the Depositary is required to keep proper records. Depositary s Report For the financial year ended SMT Trustees (Ireland) Limited, as Depositary for Pareto plc (the Company ), has enquired into the conduct of the Company during the financial year. In our opinion the Company has been managed in all material respects: in accordance with the limitations imposed on the investment and borrowing powers of the Company by the Company s Memorandum and Articles of Association and the Central Bank of Ireland under the powers granted to the Central Bank of Ireland by sections 1385 to 1415 of the Companies Act 2014, as amended Companies (Accounting) Act 2017 ( the Act ); and otherwise in accordance with the provisions of the Memorandum and Articles of Association and sections 1385 to 1415 of the Act. Conor Curtin Sheenagh Carroll SMT Trustees (Ireland) Limited Date: 26 th April

9 Alternative Investment Fund Manager s Report For the financial year ended Pareto Total had a positive last month of the year and the fund was up two per cent in December. For the whole of 2017, the fund was up more than 18 per cent. Through the year, equity holdings contributed the most to the fund s performance, whilst bond holdings continued to make a positive contribution to returns. The results are also positively affected by the fact that long positions have performed better than shares which the fund has sold short. Currency movements have played a limited role in 2017, with a little more than two per cent return in favour of the fund. The gearing level has varied, but with positive contributions to the fund. Our 10 largest positions have accounted for 71 per cent of the invested amount, and these have again contributed 75 per cent of the return. Looking ahead, we see a world economy that grows faster and has lower unemployment, with steadily increasing purchasing power for consumers in the US and Asia. Economic growth has shown strength through autumn, and companies have reported better earnings than what uncertain global economic estimates would suggest. For example, expectations of BMW s earnings per share in 2017 increased by 11 per cent through the year. In particular, our holdings in industrials such as Deere, Parker Hannifin and Cummins have seen a shift in profitability and contributed well to returns. On the other side of the scale, we find the Scandinavian construction company NCC, where earnings have been under pressure. We have had, and still have, an aim to be invested in strong companies where the ability to create long-term profitability is what characterises daily operations. This ongoing quest to improve operations and constantly position the fund within relevant products is valuable when combined with financial sustainability. Our companies are characterised by strong balance sheets, solid market positions and an ability to find sound acquisitions that consolidate growth and market positions long term. Novo Nordisk has strengthened its position within diabetes treatments by gaining approvals for new solutions in existing markets. In 2017, the share price appreciated by 31 per cent. Michelin reported good numbers, especially due to the fact that tires for large machinery have picked up. This has allowed for the fund s shares to gain a higher pricing in relation to earnings. At the end of 2017 the fund s leverage, measured by both the Gross Method and Commitment Method, was 106 per cent, down from 119 per cent at mid-year. Leverage was achieved by short equity positions and cash loan. 9

10 Alternative Investment Fund Manager s Report For the financial year ended We would like to thank our investors for a good year and wish you all the best for the year to come. 10 largest positions in the fund: Oslo, 16 th April 2018 Bård Smith-Meyer Johannessen For the Alternative Investment Fund Manager 10

11 Independent Auditors Report to the members of Pareto plc Opinion We have audited the financial statements of Pareto plc (or the Company ), which comprise the Portfolio of Investments, the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of Changes in Net Assets Attributable to Redeemable Participating Shareholders, the Statement of Cash Flows and the related notes to the financial statements, including the summary of significant accounting policies for the financial year ended 31 December The financial reporting framework that has been applied in the preparation of the financial statements is Irish law and accounting standards issued by the Financial Reporting Council and promulgated by the Institute of Chartered Accountants in Ireland including International Financial Reporting Standards (IFRSs) as adopted by the European Union (Generally Accepted Accounting Practice in Ireland). In our opinion, the Company s financial statements: give a true and fair view in accordance with Generally Accepted Accounting Practice in Ireland of the assets, liabilities and financial position of the Company as at 31 December 2017 and of its financial performance for the financial year then ended; have been properly prepared in accordance with the requirements of the Companies Act, 2014 and the Companies (Accounting) Act 2017 and the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011 (as amended). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (Ireland) (or ISAs (Ireland) ) and applicable law. Our responsibilities under those standards are further described in the responsibilities of the auditor for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Ireland, namely the Irish Auditing and Accounting Supervisory Authority (IAASA) Ethical Standard concerning the integrity, objectivity and independence of the auditor, and the ethical pronouncements established by Chartered Accountants Ireland, applied as determined to be appropriate in the circumstances for the entity. We have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (Ireland) require us to report to you where: the directors use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Company s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Other information Other information comprises information included in the annual report, other than the financial statements and our auditor s report thereon, such as the Directors Report, the Investment Managers Report, the Depositary s Report and the unaudited appendices to the Annual Report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies in the financial statements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 11

12 Independent Auditors Report to the members of Pareto plc Matters on which we are required to report by the Companies Act, 2014 & the Companies (Accounting) Act 2017 We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our opinion the accounting records of the Company were sufficient to permit the financial statements to be readily and properly audited. The financial statements are in agreement with the accounting records. In our opinion the information given in the directors report is consistent with the financial statements. Based solely on the work undertaken in the course of our audit, in our opinion, the directors report has been prepared in accordance with the requirements of the Companies Act, Matters on which we are required to report by exception Based on our knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the directors report. Under the Companies Act, 2014 we are required to report to you if, in our opinion, the disclosures of directors remuneration and transactions specified by section 305 to 312 of the Companies Act, 2014 have not been made. We have no exceptions to report arising from this responsibility. Responsibilities of management and those charged with governance for the financial statements As explained more fully in the directors report, the directors are responsible for the preparation of the financial statements which give a true and fair view in accordance with IFRS as adopted by the European Union, and for such internal control as they determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company s financial reporting process. Responsibilities of the auditor for the audit of the financial statements The auditor s objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes their opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs (Ireland), the auditor will exercise professional judgment and maintain professional scepticism throughout the audit. The auditor will also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for their opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. 12

13 Independent Auditors Report to the members of Pareto plc Responsibilities of the auditor for the audit of the financial statements (continued) Conclude on the appropriateness of the directors use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company s ability to continue as a going concern. If they conclude that a material uncertainty exists, they are required to draw attention in the auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify their opinion. Their conclusions are based on the audit evidence obtained up to the date of the auditor s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a matter that achieves a true and fair view. The auditor communicates with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that may be identified during the audit. The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the Company s members, as a body, in accordance with section 391 of the Companies Act, Our audit work has been undertaken so that we might state to the Company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s members as a body, for our audit work, for this report, or for the opinions we have formed. Niamh Meenan for and on behalf of Grant Thornton Chartered Accountants & Statutory Audit Firm City Quay Dublin 2 D02 NY19 Ireland Date: 26 April

14 Statement of Financial Position As at Notes Assets Cash and cash equivalents 7 19,254, ,519,238 Financial assets at fair value through profit or loss 3 2,949,018,864 2,232,235,288 Receivables 8 3,763,892 2,824,877 Total Assets 2,972,037,022 2,385,579,403 Liabilities Due to broker 7 121,826, ,410,379 Financial liabilities at fair value through profit or loss 3 124,539,111 - Payables 9 19,296,129 5,875,947 Total Liabilities (excluding Net Assets attributable to Holders of Redeemable Participating Shares) 265,661, ,286,326 Net Assets attributable to Holders of Redeemable Participating Shares 2,706,375,722 2,146,293,077 The accompanying notes and schedules form an integral part of these financial statements. Signed on behalf of the Board of Directors Mike Kirby Jim Cleary Date: 26 th April

15 Statement of Comprehensive Income For the financial year ended Notes Income Interest on cash and cash equivalents 2 225, ,609 Dividends on investments 2 74,884,235 59,207,128 Other income 2 198, ,373 Withholding taxes on dividends 2 (13,833,801) (13,076,618) Net gain on financial assets and liabilities at fair value through profit or loss ,648, ,974,294 Total income 493,122, ,133,786 Expenses Interest on cash and cash equivalents 2 (925,183) (692,373) Dividends paid on securities sold short 2 (3,482,628) - Performance fees 13 (14,588,781) (2,331,278) Alternative Investment Fund Manager fees 11 (6,126,656) (4,479,205) Depositary fees 11 (1,079,640) (921,821) Administration fees 11 (1,396,059) (1,138,063) Directors fees 11 (219,189) (136,190) Audit fees (138,526) (121,095) Other fees and expenses (2,538,096) (1,031,246) Total expenses (30,494,758) (10,851,271) Increase in Net Assets attributable to Holders of Redeemable Participating Shares from operations 462,627, ,282,515 Gains and losses arose solely from continuing operations. The accompanying notes and schedules form an integral part of these financial statements. 15

16 Statement of Changes in Net Assets attributable to Holders of Redeemable Participating Shares For the financial year ended Net Assets attributable to Holders of Redeemable Participating Shares at 1 st January ,146,293,077 1,758,742,567 Redeemable Participating Shares issued 102,458, ,707,122 Redeemable Participating Shares redeemed (3,567,207) (173,793,876) Equalisation credit (1,436,076) (645,251) Increase in Net Assets from Shareholder transactions 97,454, ,267,995 Increase in Net Assets attributable to Holders of Redeemable Participating Shares from operations 462,627, ,282,515 Net Assets attributable to Holders of Redeemable Participating Shares at 2,706,375,722 2,146,293,077 The accompanying notes and schedules form an integral part of these financial statements. 16

17 Statement of Cash Flows For the financial year ended Cash flows from operating activities Increase in Net Assets attributable to Holders of Redeemable Participating Shares from operations 462,627, ,282,515 Changes in operating assets and liabilities: Increase in financial assets at fair value through profit or loss (716,783,576) (509,269,778) Increase in receivables (939,015) (264,755) (Decrease)/increase in due to broker (111,584,319) 168,322,155 Increase/(decrease) in financial liabilities at fair value through profit or loss 124,539,111 (47,089,393) Increase in payables 13,420,182 3,829,538 Net cash used in operating activities (228,719,697) (207,189,718) Cash flows from financing activities Proceeds from Redeemable Participating Shares issued 102,458, ,707,122 Payments for Redeemable Participating Shares redeemed (3,567,207) (173,793,876) Equalisation credit (1,436,076) (645,251) Net cash provided by financing activities 97,454, ,267,995 Net (decrease)/increase in cash and cash equivalents (131,264,972) 3,078,277 Cash and cash equivalents at 1 st January 150,519, ,440,961 Cash and cash equivalents at 31 st December 19,254, ,519,238 Supplementary information: Interest received on cash and cash equivalents 226, ,216 Interest received on debt securities 12,635,332 10,284,368 Interest paid (835,903) (726,492) Dividends received (net of withholding tax) 59,670,300 45,573,007 Dividends paid (3,482,628) - The accompanying notes and schedules form an integral part of these financial statements. 17

18 1. GENERAL INFORMATION PARETO PLC On 21 st December 2017, the Central Bank of Ireland (the Central Bank ) approved the change of name of Pareto Total plc to Pareto plc (the Company ), along with the reconstitution of the Company from a standalone to an umbrella company. The Company is an open-ended investment company with variable capital and segregated liability between its sub-funds, incorporated with limited liability and registered in Ireland under Sections 1385 to 1415 of the Companies Act 2014, as amended by the Companies (Accounting) Act 2017 (the Act ) and the AIF Rulebook regulations with registered number As at, there is only one sub-fund in the Company namely, Pareto Total (the Sub- Fund ). The Sub-Fund was authorised by the Central Bank on 18 th July 2013 as an investment company under the Act, Part 24. The Sub-Fund is a multi-class investment company with Institutional Class A, Institutional Class B, Institutional Class I (issued in January 2016) and Founder Class Shares available for issue. Institutional Class A, Institutional Class B and Institutional Class I Shares are denominated in Norwegian Krone ( ) and Founder Class Shares are denominated in Euro ( EUR ). The assets of the Sub-Fund comprise a single portfolio with base currency in. On 23 rd February 2015, the Central Bank of Ireland granted approval to Pareto Asset Management AS, as Alternative Investment Fund Manager (the AIFM ) previously Pareto Nordic Investments AS, to passport AIFM services into Ireland. The investment objective of the Sub-Fund is to achieve robust long-term returns through flexible and active investments, whilst curbing downside volatility. The Sub-Fund is managed to achieve optimal risk adjusted returns through security selection and asset allocation. The Sub-Fund commenced trading on 16 th January PRINCIPAL ACCOUNTING POLICIES The significant accounting policies adopted by the Company are as follows: Basis of Preparation The financial statements have been presented in compliance with International Financial Reporting Standards ( IFRS ) as adopted by the European Union (the EU ) as published by the International Accounting Standards Board and provisions of the Act. These financial statements are presented in which is the Sub-Fund s functional currency. They are prepared on a fair value basis for financial assets and financial liabilities at fair value through profit or loss. Other assets and liabilities are stated at amortised cost or redemption amount (Redeemable Participating Shares). The preparation of financial statements in conformity with IFRS as adopted by the EU requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. 18

19 2. PRINCIPAL ACCOUNTING POLICIES (continued) Basis of Preparation (continued) The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the financial period in which the estimate is revised, if the revision affects only that financial period or in the financial period of the revision and future financial periods, if the revision affects both current and future financial periods. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in Note 4. Financial Assets and Liabilities at fair value through profit or loss (i) Classification This category has two sub-categories: financial assets and liabilities held for trading and those designated by management as at fair value through profit or loss upon initial recognition. Financial instruments held for trading These include equities, corporate bonds and variable rate bonds. These securities are acquired for generating a profit from short-term fluctuations in price or dealer s margin or are included in a portfolio in which a pattern of short-term profit taking exists. Financial instruments designated as at fair value through profit or loss upon initial recognition These include financial assets that are not held for trading, such as certain equity instruments. These financial instruments are designated on the basis that their fair value can be reliably measured and their performance has been evaluated on a fair value basis. (ii) Recognition The Sub-Fund s trading securities are accounted for on the trade date and are acquired at fair value at the time of acquisition and transaction costs are expensed as incurred and included in the Statement of Comprehensive Income. Realised and unrealised gains and losses on trading securities are calculated on a first in first out basis and are included in the Statement of Comprehensive Income. (iii) Subsequent measurement After initial measurement, the Sub-Fund measures financial instruments, which are classified as at fair value through profit or loss, at their fair values. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial instruments is based on their quoted market prices on a recognised exchange or sourced from a reputable broker / counterparty in the case of non-exchange traded instruments, at the Statement of Financial Position date, without any deduction for estimated future selling costs. Where investments are listed or dealt in more than one market, the Directors will, in their absolute discretion, select the market, which in their opinion constitutes the main market for such investments. The Directors have delegated the valuation of the investments to the Administrator. 19

20 2. PRINCIPAL ACCOUNTING POLICIES (continued) (iii) Subsequent measurement (continued) For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include: using recent arm s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models, making as much use of available and supportable market data as possible. Subsequent changes in the fair value of financial instruments at fair value through profit or loss are recognised in the Statement of Comprehensive Income. Interest and dividends earned or incurred are accrued in interest and dividend income or expense respectively, according to the terms of contract. Fair value estimates are made at a specific point in time, based on market conditions and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The values used may have been different had a ready market existed and these differences could be material. Realised and unrealised gains and losses on all investments are accounted for through the Statement of Comprehensive Income. (iv) Derecognition The Sub-Fund derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition when either the Sub-Fund has transferred substantially all the risks and rewards of the financial assets, or the Sub-Fund has neither transferred nor retained substantially all the risks and rewards of the financial assets, but has transferred control of the financial asset. The Sub-Fund derecognises a financial liability when the obligation specified in the contract is discharged, cancelled or expires. (v) Offsetting financial instruments Financial instruments are offset and the net amount reported in the Statement of Financial Position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on net basis or realise the asset and settle the liability simultaneously. (vi) Transfer between levels of the fair value hierarchy Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the financial year. Cash and cash equivalents Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant changes in value and are held for the purpose of the meeting of short-term cash commitments rather than for investments or other purposes. SMT Trustees (Ireland) Limited as Depositary has appointed Sumitomo Mitsui Trust (UK) Limited as its Custodian. Sumitomo Mitsui Trust (UK) Limited has, in turn, appointed Brown Brothers Harriman & Co. ( BBH ) as their sub-custodian. This cash is ultimately held at BBH as Banker. Cash comprises cash held with Skandinaviska Enskilda Banken ( SEB ) and BBH. 20

21 2. PRINCIPAL ACCOUNTING POLICIES (continued) Due to Broker Due to broker comprises of amounts due to SEB and BBH. Functional and Presentation Currency Items included in the Company s financial statements are measured using (the functional and presentation currency). Foreign Currency Translation Securities transactions are recorded in the financial statements on the trade date of the transaction and translated into (the presentation currency) at the exchange rate prevailing at the close of business on the trade date. Other foreign currency payments are translated into at the rate of exchange on the transaction date. All assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates ruling at the Statement of Financial Position date. Foreign currency gains or losses arising from trading activities are included in the Statement of Comprehensive Income within net gain on financial assets and liabilities at fair value through profit or loss. Income / (Expense) Dividend income and expense is recorded on an ex-date basis gross of any non-recoverable withholding taxes suffered which is disclosed separately in the Statement of Comprehensive Income. Dividend expense related to equity securities sold short and was recognised when the Shareholder s right to receive the payment was established. Interest income and expense on debt securities are both accounted for on an effective yield basis, other interest income and expense are both accounted for on an accrual basis. Other income relates to VAT returns and a subscription fee at a rate of 0.1% of the subscription amount and stock lending amounts received from SEB. The subscription fee may be waived in whole or in part at the discretion of the Directors who may consult with the AIFM. Expenses Expenses are accounted for on an accrual basis. Redeemable Participating Shares Redeemable Participating Shares are redeemable at the Shareholders option and are classified as financial liabilities. The liabilities arising from the Redeemable Participating Shares are carried at the redemption amount being the NAV. The Redeemable Participating Shares can be put back to the Sub- Fund on any dealing day (quarterly) for cash equal to a proportionate share of the Sub-Fund s NAV. Calculation of NAV The NAV per share of any class is calculated by determining that proportion of the NAV that is attributable to the relevant class. All shares are issued and redeemed at this price. 21

22 2. PRINCIPAL ACCOUNTING POLICIES (continued) New standards, amendments or interpretations issued and effective for the financial year beginning 1 st January 2017 IAS 7 Statement of Cash Flows IAS 7 requires an entity to present a Statement of Cash Flows as an integral part of its primary financial statements. IAS 7 was amended on 29 th January 2016, requiring entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment is effective for periods beginning on or after 1 st January The amendment has no significant impact on the layout and disclosure of the Sub-Fund s Statement of Cash Flows. New standards, amendments or interpretations issued but not effective and not early adopted for the financial year beginning 1 st January 2017 IFRS 9 Financial Instruments The Sub-Fund is required to adopt IFRS 9 Financial Instruments from 1 st January IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. It includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. Classification of financial assets and financial liabilities IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics. The standard includes three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income ( OCI ) and fair value through profit or loss ( FVTPL ). The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables, plus available for sale. IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. However, although under IAS 39 all fair value changes of liabilities designated as at FVTPL are recognised in profit or loss, under IAS 39 these fair value changes are generally presented as follows: - the amount of change in the fair value that is attributable to changes in the credit risk of the liability is presented in OCI; and - the remaining amount of change in the fair value is presented in profit or loss. Based on the Sub-Fund s assessment, this standard is not expected to have a material impact on the classification of financial assets and financial liabilities of the Sub-Fund because: - financial instruments currently measured at FVTPL under IAS 39 are designated into this category because they are managed on a fair value basis in accordance with a documented investment strategy. Accordingly, these financial instruments will be mandatorily measured at FVTPL under IFRS 9; and 22

23 2. PRINCIPAL ACCOUNTING POLICIES (continued) New standards, amendments or interpretations issued but not effective and not early adopted for the financial year beginning 1 st January 2017 (continued) IFRS 9 Financial Instruments (continued) Classification of financial assets and financial liabilities (continued) - financial instruments currently measured at amortised cost are cash balances. These instruments meet the solely payments of principal and interest ( SPPI ) criterion and are held in a held-to-collect business model. Accordingly, they will continue to be measured at amortised cost under IFRS 9. Impairment of financial assets IFRS 9 replaces the incurred loss model in IAS 39 with a forward-looking expected credit loss ( ECL ) model. This will require considerable judgement about how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis. The new impairment model will apply to financial assets measured at amortised cost or fair value through other comprehensive income, except for investments in equity instruments. Based on the Sub-Fund s assessment, changes to the impairment model are not expected to have a material impact on the financial assets of the Sub-Fund as the majority of the financial assets are measured at FVTPL and the impairment requirements do not apply to such instruments. 3. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS Financial assets at fair value through profit or loss Fair Value Fair Value Held for trading: - variable rate bonds 156,838,197 92,544,046 - corporate bond - 9,642,500 - equity securities long 2,792,180,667 2,130,048,742 Total financial assets at fair value through profit or loss 2,949,018,864 2,232,235,288 Financial liabilities at fair value through profit or loss Held for trading: - equity securities sold short 124,539,111 - Total financial liabilities at fair value through profit or loss 124,539,111 - Net changes in fair value on financial instruments at fair value through profit or loss are disclosed in Note

24 4. FAIR VALUE OF FINANCIAL INSTRUMENTS The tables below show financial instruments recognised at fair value, analysed between those whose fair value is based on: Quoted prices in active markets for identical assets or liabilities (Level 1); Those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and Those with inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). There were no investments valued in this manner, either at or Level 1 Level 2 Level 3 Total Financial assets at fair value through profit or loss Financial assets held for trading Variable rate bonds - 156,838, ,838,197 Equity securities long 2,792,180, ,792,180,667 Financial liabilities at fair value through profit or loss 2,792,180, ,838,197-2,949,018,864 Financial liabilities held for trading Equity securities sold short 124,539, ,539, ,539, ,539,111 Financial assets at fair value through profit or loss Financial assets held for trading Variable rate bonds - 92,544,046-92,544,046 Corporate bonds - 9,642,500-9,642,500 Equity securities 2,130,048, ,130,048,742 2,130,048, ,186,546-2,232,235,288 24

25 4. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) The fair value of listed equity securities is based on quoted market prices or binding dealer price quotations at the reporting date, without any deduction for transaction costs and are therefore included within Level 1. The fair value of debt securities is based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) and are therefore included within Level 2. For all other financial instruments, fair value is determined using valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist and other relevant valuation models. There were no transfers between levels during 2017 or Financial instruments not measured at fair value The financial instruments not measured at fair value through profit or loss are short-term financial assets and liabilities whose carrying amounts approximate fair value. The tables below and overleaf analyse the Company s assets and liabilities not measured at fair value as at and 2016 by way of the fair value hierarchy: Level 1 Level 2 Level 3 Total 2017 Assets Cash and cash equivalents 19,254, ,254,266 Dividends receivable - 2,739,401-2,739,401 Interest receivable - 1,024,491-1,024,491 Total 19,254,266 3,763,892-23,018,158 25

26 4. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) Financial instruments not measured at fair value (continued) Level (continued) Level 2 Level 3 Total Liabilities Due to broker - 121,826, ,826,060 Interest payable - 108, ,519 Performance fees payable - 14,586,894-14,586,894 Equalisation credit payable to Shareholders - 1,436,076-1,436,076 Alternative Investment Fund Manager fees payable - 1,750,103-1,750,103 Depositary fees payable - 267, ,918 Administration fees payable - 389, ,231 Audit fees payable - 137, ,116 Other payables - 620, ,272 Net Assets attributable to Holders of Redeemable Participating Shares - 2,706,375,722-2,706,375,722 Total - 2,847,497,911-2,847,497, Assets Cash and cash equivalents 150,519, ,519,238 Dividends receivable - 1,359,268-1,359,268 Interest receivable - 1,304,184-1,304,184 Other receivables - 161, ,425 Total 150,519,238 2,824, ,344,115 Liabilities Due to broker - 233,410, ,410,379 Interest payable - 19,238-19,238 Performance fees payable - 2,331,278-2,331,278 Equalisation credit payable to Shareholders - 645, ,251 Alternative Investment Fund Manager fees payable - 1,219,088-1,219,088 Depositary fees payable - 204, ,421 Administration fees payable - 295, ,517 Audit fees payable - 126, ,747 Other payables - 1,034,407-1,034,407 Net Assets attributable to Holders of Redeemable Participating Shares - 2,146,293,077-2,146,293,077 Total - 2,385,579,403-2,385,579,403 26